Notes From the Field: Opening the Balkans to Services Trade

About "Notes From the Field": With this occasional feature, we let World Bank professionals who are conducting interesting trade-related projects around the globe explain some of the challenges and triumphs of their day-to-day work. The views expressed here are personal and should not be attributed to the World Bank.

The interview below was conducted with Borko Handjiski, a senior economist in the World Bank’s Poverty Reduction and Economic Management (PREM) network. Until his recent move to the Africa region office, Mr. Handjiski was the regional trade coordinator for the Europe and Central Asia region. He spoke with us about efforts to liberalize trade in services in the Balkan countries, a subject he and Lazar Sestovic wrote about in a 2011 study, “Barriers to Trade in Services in the CEFTA Region.” In the interview, which has been edited for clarity, Mr. Handjiski explains how the World Bank is helping the Balkan countries better understand the benefits of liberalizing services trade and work with stakeholders in formalizing a regional trade agreement.

The Trade Post: What is your background and how did you get involved in this kind of work?

Mr. Handjiski: My background is in macroeconomics. I work as a country economist. I’ve worked on four of the Balkan countries over my career. I’ve had interest in trade from the early start of my career. I think that comes from my background. I come from Macedonia, one of the Balkan countries, which is, as all the others, a small, open economy. For a small, open economy, trade is one of the key pillars of economic development. So, that’s why I had interest in trade, and I had worked on several reports and had published reports, even before the one on services, on trade issues for the Balkans.

After seeing the progress on one aspect of trade, meaning liberalizing trade and opening especially trade in goods, my team saw that there is a lack of attention on services trade and that’s how we decided to do a paper, together with a colleague of mine, on this topic. Following the positive interest we received from the countries, I applied for funding from a trust fund for technical assistance, which we have been using to support these countries.

The Trade Post: Tell me about the project.

Mr. Handjiski: What we’ve been working on over the past year and a half – almost two years – is trying to help the countries in their goal to increase regional integration by liberalizing services trade. So basically the context in the Balkans is, after 2000, they took a lot of steps to liberalize trade in goods. First they did a round of bilateral agreements, then they decided to replace those bilateral agreements with one regional multilateral agreement for eight countries. And with that agreement, trade in goods was largely liberalized. And the Balkan countries had an objective or commitment to liberalize services – that was a nonbinding commitment.

The Trade Post: What was the World Bank’s role in this process?

Mr. Handjiski: What we did in 2011 was that we published a report that showed some of the barriers to trade in some services. With the help of colleagues from PREM Trade – with Sebastian in particular, who is the expert in this field – we presented on several occasions, to all countries at the same time, because they have annual meetings, they have working group meetings, etc.

Services is a big term, so it covers everything from professional services to financial services to telecommunications, etc. Some services in the Balkans have already been liberalized – financial services, telecoms, electricity, aviation – so we focused on those services sectors that had not seen a wave of liberalization. And we selected several – four in particular – sectors and we tried to show the impediments to trade in those sectors (construction, transport, legal and architecture services). And that was very well-received by the countries.

They put the issue of services liberalization on the table – within the institutional framework of the free trade agreement (FTA). They put it on the agenda for a possible next step of liberalization.

The Trade Post: What’s happening now with the liberalization of services?

Mr. Handjiski: It didn’t happen overnight. Now recently they’re starting to take concrete steps to do something about it. In November, they had a ministerial meeting where the ministers committed to liberalizing certain services by the end of 2013. This seems a little bit overambitious, but still, nevertheless, now they are currently in the process of deciding which specific sectors they are going to include and what is going to be the method for negotiating liberalization.

The Trade Post: Was there any political resistance to any of these liberalization efforts?

Mr. Handjiski: In principle, in services sector liberalization, there is always political resistance. There is unwillingness among the political leadership, in principle, because it often means opening markets for individual professionals from other countries to provide services in your country. So it’s always a headline: “The neighbors are going to steal our jobs,” be it doctors or IT engineers or architects or whatever. What you often find in the case of liberalizing some services, especially professional services, is that you have pressure from vested groups. Most professional services – for example lawyers, doctors, architects – are organized in associations and oftentimes associations have certain legal powers. These might be to set prices, or to say who can be an architect or who cannot be. And they have, of course, their own vested interest in protecting their membership.

The Trade Post: In this case how did you or how did the country overcome that kind of resistance?

Mr. Handjiski: We are only now coming to this stage of the process where we need to overcome the resistance to some of these reforms. And what the countries plan to do is have a consultation process and dialogue with all of the relevant stakeholders. Where we as the Bank plan to support the countries is by being kind of a catalyst in this process. One, by doing analytical work, we are going to help the countries understand the economics of the liberalization – understand better the market, the domestic market, the foreign market, what are going to be the possible advantages or disadvantages from liberalization.

And then, also, we will try to bring together all the stakeholders – maybe organize conferences and workshops. We call this “services knowledge platform,” this whole approach of how to liberalize services. We are already testing it in East Africa, so we have another member of the team, Nora Dihel, who is in the Africa Department, and she started this approach for the East African Community, which is similar – a regional, free-trade agreement, which had some vision to include more than just trade in goods. We are following a similar approach.

The Trade Post: Why is the World Bank’s role – gathering stakeholders and presenting economic evidence – important to this process?

Mr. Handjiski: I think this is one of the areas where we are ideally positioned to undertake this role – and maybe we are the only player or institution that can provide this role. Especially since the biggest value in this process comes from sharing experiences from other parts of the world. And we are the only one who collects global experiences. If we take trade issues, it’s concentrated in this unit – in [The International Trade unit] – I don’t think there are other partners that can provide such support in that area. The European Union has a very important role in this particular process, with this group of countries. But in general, in doing the economics, the analysis and bringing the experiences from around the world, I think the Bank is the best place to undertake that role.

The Trade Post: What would a successful ending of this project look like?

Mr. Handjiski: A successful ending would be expansion – within the next twelve months – of the regional free trade agreement, where certain sectors are liberalized under a certain timeframe and certain rules.

Comments

It sounds pretty interesting this undertaking led by the World Bank. I was just wondering what else could be needed to push forward further liberalization in the region concerned besides workshops and sensitization activities (linkages with a regional investments strategies similar to modes of services supply others than GATS mode 4). I'm also wondering about the WTO Secretariat level of involvement in such interesting initiative, so that to keep or streghtening compliance with world trade relevant agreements and rules. All the best. AP